One of the common price patterns in technical analysis is Pattern of Cup and Handle. This model was discovered by a stock researcher named William O ’Neil when studying stock price charts in the US stock market. It is also described by the author as a model to detect super stocks! Because after forming it will have a period of galloping and increase in a long time. Some stocks become super stocks after they have formed Pattern of Cup and Handle are Microsoft, Amazon and Apple ...
Previously, the Coc and Handle models were mainly applied in the stock market, but later with the development of the forex market and more recently, the virtual currency, it also applied the same principle. self.
The difference of Coc and Handle models in the stock market and forex market
- In the stock market, the time of formation of the cup and handle model is calculated in weeks and months and years. Each candle represents a minimum time of one day so the formation time is longer.
- In the forex market, because the minimum time for a candle is 1 minute, and forex trading is done 24 hours a day, the cup and handle pattern is formed in a shorter time. However, not because the minimum time frame of a candle in forex is a minute that cup and handle pattern is calculated in minutes. According to actual statistics, the cup and handle model in the forex market formed from a minimum of a few days to a few weeks will have higher accuracy. Of course it can take months, even years.
- In addition, the forex market has two dimensions (you can buy before selling after, or selling before buying after also) so the cup model and reverse handle also work in forex. In the stock market, in statistics, people do not see the model of the cup and the reverse handle promote employment.
Basic Cup and Handle models
Outline Model of Cup and Handle
The diagrams above are the most basic and recognizable models of the Coc and the Handle. In fact, the price patterns appear very diverse, requiring the sharpness and sophistication of the analyst to be visible. However, we have a description of this model as follows:
The cup and handle model has two basic parts: the cup body and the handle. The cup body is formed after a period of price increase and has a U-shaped bend. The handle is formed at the resistance at the top of the cup. The handle can be horizontal or a downward adjustment of not more than 30% of the cup body. The length of the handle varies from 1/3 to 2/3 of the length of the cup mouth.
In the stock market, the entire process of forming and completing the Coc and Tay models usually takes 3 to 6 months. As for the forex market, it is more flexible.
Psychological movements of the Coc and Tay Cam models
Initially the price was in an uptrend, then it started to adjust to decrease. That is when investors are taking profits to make a profit, thinking that the price has risen too high, so it is difficult to increase more. However, few people realize that it is a future super stock. Some investors with strong financial potential and good analysis have started gathering stocks in the bottom of the cup, causing price to fluctuate horizontally and increase gradually in a U shape.
It is important to remember that these wise investors have a better view, coupled with their strong financial strength, so the demand they have bottomed out is very sustainable. This sustainability is also a guarantee for maintaining the upward momentum of prices in the future.
When the price reaches the top of the cup, resistance is brought to a halt. The price will move sideways or slightly correct at that resistance level for a while forming a "Handle". After a period of accumulation in the "handle" area, if it breaks out strongly to go up from the "mouth of a cup", it will start stimulating investors to follow the trend of buying. At the same time, the basic information related to that stock was launched positively, causing a sharp increase in the price.
In case the price does not break through the mouth of the cup, but drops by more than 50% of the body of the cup, the pattern is considered to be a failure, most likely the price will plummet.
Some notes when using the Coc and Handle models
- At the body of the cup, if the price is adjusted and then goes up and has a fair and beautiful curvature, the model will work more effectively. If it is V-shaped, the confidence level is lower.
- The width of the mouth of the cup is as wide as possible (but not too wide to disrupt the whole), that is, it is more like the lower half of the O shape is cut in half rather than as narrow as the U shape.
- The right mouth should not be too much lower than the left. A little lower is still acceptable.
- Although in many cases, the model without a handle can still spike prices. However, if it has a cumulative period of time in the handle area, the probability of a sharp increase and travel will be higher.
- If the handle is wedge-shaped upwards, the likelihood of the model failure will be high. As you know, an upward wedge pattern is a sign that the price is about to go down.
Some models of Coc and Handle in reality
Because the models in the actual graph are often difficult to recognize, here I collect some real models of Coc and Handles for you to look.
Figure below: A nice model of Coc Coc and handle
How to deal with cup and handle pattern
- First of all as you know, after a period of price increases it always adjusts. When the price adjusts to the bottom of the cup and you are hesitating at the bottom of the cup you can buy two small orders. Note that only buy small orders, not all hands (full) where okay. The problem is that in this case, the model of Coc and Cam has not yet formed, so you do not know what model it is. You only buy according to basic judgment, combined with technical analysis indicators, especially according to Fibonacci.
- When the price reaches the mouth of the cup (resistance), sell an order to take profit. Holding an order in case the price can rise immediately will not be lost the opportunity. But often when facing resistance, prices will not increase immediately but often fluctuate around it for a while to accumulate.
- In the process of fluctuating around the "handle" area, if you are a Day Trading, you can buy at low prices, sell when it encounters resistance to take advantage of the small fluctuations.
- Wait until the Coc and Handle models become clearer for you to formulate the strategy. After the model completes, at some point it will suddenly rebound sharply, breaking the resistance at the mouth of the cup. Immediately after the break, you can buy a few small orders (small orders okay) just in case it is just a fake break out.
- After the price breaks out, it usually returns to test support. (The resistance at the mouth is now a support level). If the price tests the support successfully, it will turn up. During the spin up, you buy gradually into small orders. To trade effectively when prices break below support and resistance, I recommend reading the following article: What is break out? Transactions when price breaks out.
- When the price goes up and it goes back to the test, it is time for you to enter additional large orders that are within the scope of your capital management strategy.
- Should remember. All buy orders must place a Stop loss. There are important Stop loss levels in this model: 1) Just below the handle. 2) Right below the "cup mouth". You should refer to this article: How to set Stop loss and Take Profit effectively.
Author: Pham Khuong
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